What is a circulating supply in cryptocurrency?
Have you ever asked yourself what is circulating supply in cryptocurrency lately? Are you also one of these crypto fanatics eager to learn about this topic from experienced professionals? If so, you could gather plenty of information about the circulating supply in the crypto universe.
First of all, the crypto market is evolving, attracting new crypto enthusiasts and investors to invest in some of their preferred cryptocurrencies every day. They’re eager to find all the possible solutions, ideas, and how-to information that will help them improve their crypto knowledge and investing skills.
One of the best ways to help these investors to make better investing decisions is to find a proper answer to the question, “What is circulating supply in cryptocurrency, and how does it work exactly?”
Knowing the answer to this will, undoubtedly, help you stand out from other investors and gain much more success in this field. So, let’s get started with the circulating supply basics, shall we?
Learn what is circulating supply in the crypto universe
The circulating supply in cryptocurrency represents the number of tokens or coins that are circulating in the crypto market and are available to the public worldwide. In other words, it’s the number of coins in circulation in the crypto market and the general public.
Keep in mind that it is a fluctuating value that can increase or decrease over some time. Individuals can create new coins via the mining process if a cryptocurrency is mineable. On the other hand, if we are speaking of a decentralized token, developers can freely increase the supply via immediate minting.
The supply can also go down either via burning or accidentally, such as losing access to a wallet or sending coins to an irrecoverable address. However, besides getting an answer to the question of what the circulating supply in cryptocurrency is, let’s find out how it works precisely.
How does the circulating supply work exactly?
Once a cryptocurrency gets launched, not all of the coins or tokens are launched simultaneously. Typically, a set amount gets launched in the first place, and after some time, the remaining coins or tokens are minted into Blockchain technology.
Here is a brief example of it. Bitcoin is mined relatively every ten minutes until the fully diluted amount of 21 million coins is reached. In addition, all coins can be burned to reduce the total supply in circulation as much as possible.
Keep in mind that the circulating supply in crypto exclusively refers to the total amount of coins that are available for everyone, not the maximum supply or fully diluted overall.
The metric of circulation supply is an imperfect approximation.
The network at large cannot possess reliable knowledge of how much of the total supply is included in the active circulation. For that reason, the metric of circulating supply is considered an imperfect approximation.
Here is one example: Even though nominally, the circulating supply of Bitcoin should be over 18 million coins, which is the amount of minted Bitcoin since the inception of the network, it is expected that approximately 4 million Bitcoins have been lost permanently, placing the accurate circulating supply closer to 14 million.
The circulating supply refers only to the available coins to the public. Hence it must not be confused with the max supply or total supply. The max supply refers to the best approximation of the maximum amount of coins of the cryptocurrency that will ever be available, or in other words, coins that will ever exist.
On the other hand, the total supply metric reflects all the coins that have been mined or created.
Why is circulating supply so essential in the crypto world?
While some people wonder what is circulating supply in cryptocurrency, others ask themselves why it is so important. The circulating supply is essential in the crypto world because once multiplied by the per-unit price. All the investors can better understand the approximate valuation of numerous cryptocurrencies.
That approximate valuation of cryptos is known as market capitalization. The main rule is – that the greater the market capitalization, the better the cryptocurrency will generally perform in a volatile crypto market. In order to do the market cap, you must supply and multiply it by the current market price of the cryptocurrency.
The market cap determines the total risk and stability of the crypto.
For example, if there’s a circulating supply quantity of 100,000 cryptocurrency coins and the coin’s current value is $5 each, it means that the market capitalization will equal $500,000. Hence, the market cap is so important because it can be utilized to determine the crypto asset’s actual risk and stability you’re seriously considering investing in.
It is crucial to understand that a cryptocurrency with a more excellent market cap, usually more than $10 billion, is hugely affected by significant fluctuations, such as if a holder with many tokens sold off their supply.
Basically, the circulating supply of crypto is an essential metric to know if you are seriously thinking of investing in cryptocurrencies.
How can you calculate the total market cap of a coin?
Those who are eager to find out how they can calculate the total market capitalization of a coin should know that it’s possible by multiplying a coin’s market price with the number of coins that are in circulation.
For instance, if a particular cryptocurrency is traded at $2.00 each and possesses a circulating supply of one million coins, the total market cap will equal two million dollars.
What if the circulating supply reaches max supply?
A significant number of cryptocurrencies come with a maximum supply, which helps them deal with inflation. If a coin reaches its max supply, you should keep in mind that there won’t be any new coins anymore.
All transactions of that crypto token will be ongoing; meanwhile, the miners will still get rewards via transaction processing fees. However, crypto miners will be affected by all of that. What is also essential is that there will be new ways of validating transactions. Thus mining will soon be affordable.
So, when all the coins for a specific token are mined, these miners will get the opportunity to ask for more enormous, higher processing fees, transactions, or large batches. Also, there won’t be any new crypto tokens.
It’s likely for the price of the existing supply to increase and make that token extremely valuable and rare. The final result is that investing in such coins is exceptionally profitable.
Differences between circulating supply and total supply
Besides asking themselves, “What is circulating supply in cryptocurrency” some individuals seriously think about the main differences between circulating and total supply. Thus, we’d like to share with you the essential differences:
- The circulating supply represents tokens or coins that are available to the public and are trading in the market.
- The total supply is the overall amount of tokens or coins in existence. Depending on several factors, the total supply is able to decrease or increase. An excellent example of increasing total supply is Ethereum.
- The crypto’s total supply is currently circulating in the crypto market and increasing, which is a practice that generates concerns for inflation. For this reason, there’s been a suggestion of a fixed supply that might be implemented in the near future.
- On the other hand, the total coins are also able to decrease, just like coin burns, for instance.
What is an excellent circulating supply in cryptocurrency?
So, what is a circulating supply in cryptocurrency should now be the last question since we’ve determined that it’s simply several tokens or coins that are in circulation on the crypto market and are available to the public.
So, besides knowing what is circulating supply in cryptocurrency, it’s crucial to understand that an excellent circulating supply creates demand with investors. Small is good, even in the crypto universe. For instance, Bitcoin has only 18,925,000 circulating supply, while Ethereum has 120,266,768 as of the beginning of April 2022.
The crypto with the lowest circulating supply is Illuvium (ILV), 650,786 ILV.
Cryptocurrencies – briefly explained to total beginners.
After learning what is a circulating supply in cryptocurrency, we’d like to briefly overview what cryptocurrencies generally are and what we can expect shortly on the crypto market. For newbies in this industry, cryptocurrencies represent digital currencies that work as a medium of exchange via a computer network.
The network isn’t reliant on any third-party such as a bank or government to maintain or uphold it. Cryptocurrencies are on a digital ledger, known as Blockchain technology; a computerized database that utilizes strong cryptography for securing transaction records.
Cryptos do not exist in physical forms, such as fiat money, or a central authority issues them. They usually use decentralized control, opposing CBDC – a central bank digital currency.
Bitcoin was the first-ever decentralized cryptocurrency released in 2009 as open-source software. Since then, the number of created cryptocurrencies has constantly been rising. As of March 2022, there are over 18,000 cryptocurrencies in existence.